Relais extensive report: Vehicle aftermarket consolidator

Relais' value creation model is based on owning and developing businesses, and consolidating the vehicle aftermarket. Raw material for this, i.e. cash flow, is produced by its current businesses, which, according to our estimate, will grow in the long run roughly at the pace of economic growth. We consider the current valuation of the stock moderate, whereas the risk level of the company’s defensive business is quite reasonable in our opinion. Thus, we consider the share’s risk/reward ratio attractive, and reiterate our EUR 15.0 target price and Buy recommendation.

Relais operates in the vehicle aftermarket

Relais Group persistently owns and develops companies that operate in the vehicle aftermarket and consolidates the aftermarket. Current Group companies are engaged in wholesale of spare parts, lighting and equipment and commercial vehicle repair and maintenance business in the Nordic and Baltic countries. Over the past good three years, Relais has grown with the help of more than ten acquisitions and we estimate faster organic growth than market growth. The company’s financial target is to reach an operating result of 50 MEUR (pro forma EBITA) by the end of 2025, which requires significant earnings growth compared to the 2023 level (EBITA 28.6 MEUR). Reflecting this objective, we expect the company to continue to be active in the acquisition market in the near future.

The main drivers of profit growth are organic growth and allocating capital to acquisitions

Relais' target market grows mainly in line with the growth rate of the vehicle fleet, which we estimate is roughly in line with the economic growth rate in the medium and long term. Thus, reflecting revenue growth roughly in line with market growth and maintaining the achieved commendable efficiency, we expect earnings growth to be on average around 3% in the coming years (2024-2027). Relais’ financial position, operating cash flow and the ability to use own shares as a trading tool enable inorganic growth, but we also consider collection of additional funding and acceleration of inorganic growth quite possible in the next few years. We estimate that the key driver of the expected return for a longer-term investor is the outcome of capital allocation to which the key risks are also primarily linked. Considering the quality and valuation levels of recent acquisitions, we believe that the track record of acquisition-driven growth is good.

We consider the valuation moderate

Adjusted P/E ratios for 2023 and 2024 based on our estimates are 12x and 11x the adjusted EV/EBITA ratios are 10x. We find these valuation multiples moderate for the current business entity and, on the other hand, they do not price the value creation of capital reallocation. In relative terms, Relais is valued at a discount to the peer companies with similar businesses, while relative to the peer group of serial consolidators the share is valued at a clear discount. In our opinion, Relais' justified valuation level is found in the middle ground of these peer groups. Examined with various valuation indicators we find the stock's current valuation moderate. Thus, we consider the stock's risk/reward ratio attractive.